I love the movie Rounders, in which Matt Damon is a poker player looking for a big break (and then a way to get out of some serious trouble).
In the movie, his character Mike McDermott makes a comment early on that as a player, “your goal is to win one big bet an hour – that’s it.”
Notice he said “win one big bet” rather than “place one big bet.” There’s a key distinction here and it applies to trading.
Amateur Hour
Amateurs too often think they need to place some big bets in order to win big. They couldn’t be farther from the truth.
Amateurs are also generally too proud to fold. That’s admitting defeat, and rather than seeing the bigger picture of losing some battles in order to win the war, they take a stand when they shouldn’t – and they pay for it.
How the Pro’s Play
Professional traders, on the other hand, realize there’s plenty of quiet time to endure before those payout opportunities occur. They realize it’s a matter of hanging around, staying in the game, in order to be fit to capitalize on the best “hands” they are dealt.
Professionals understand that taking small hit after small hit is easily undone by just a win or two – so long as they’re losing smaller and winning bigger. Be willing to fold repeatedly if necessary – the goal is to be net profitable, but that won’t happen every single time you commit your capital.
Trading is a numbers game, and professionals only play (or play for meaningful stakes) when conditions are most favorable. Very simple, but very difficult for many amateurs to do.
So the question is… are you thinking (and acting) more like an amateur or a pro?
(Hint: your results are likely already reflecting it.)
Good article Jeff.
I agree completely, and think that one of the important things about your index reviews is that it shows when there is momentum, and when stocks are just threading water and there is no point in being all in.
There should be no compulsion to get into a trade if the risk reward ratio looks wrong. There are lots of other trades out there.
Nothing was happening on your picks for today since the market is still off from the fed minutes, so no big deal. I waited until the first hour of craziness was over on the market, then found a candidate from your bear list, IDCC, that looked good, and put a small amount in.
As you put it, it is want to stay in the game, but hold the big chips for the really good hands.
Most times I am staying away from that first hour of trading since it may not reflect what is really going to happen the rest of the day. Yep, I miss some trades, but there are lots of trades out there, and I want ones that fit my style of trading.
Hey John, nice work today with the IDCC and keeping it on the radar. Selectivity will serve you well, especially in this kind of environment where the trend is still intact but daily commitment levels are less than ideal in either direction. I also like how you’ve adapted a plan that fits *you* – that is great to hear and my hope is that everyone aims for finding their unique approach as well.